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Wolseley hit by profit slump

Heating and plumbing distribution giant Wolseley has seen profits before tax fall by £489million this year as it struggles against the global downturn and particularly tough trading conditions in the UK and United States.

The group’s final results for the financial year ending 31 July 2008 show revenue was up two per cent to £16.5billion, but pre tax profits fell from £634mill last year to £145mill this year.

Over the past 12 months the company has been involved in aggressive cost cutting which has cost £76mill in “exceptional restructuring charges”, but has secured savings totalling £47million so far and is hoping the cutbacks will result in annual savings of £176mill.

The cuts have already involved the closure of 270 branches and 7,100 job losses - with a further 600 redundancies announced since the beginning of August.

The results announcement said the company will continue to focus on “necessary cost reduction” to achieve increased productivity and efficiency with further restructuring expected.

Chip Hornsby, Wolseley chief executive, said: “We have continued to take action to reduce costs and drive working capital improvements in response to challenging market conditions.

“While these conditions have impacted many of our businesses significantly during the year, our employees have done a good job at responding to the tough markets and we are seeing the benefits of our actions with market outperformance in many areas.

“Financial discipline in terms of cost reduction and cash flow enhancement remains our primary focus to ensure the Group remains compliant with our banking covenants and is well positioned for any market recovery.”

Performance in UK and Ireland
Wolseley’s UK operations saw organic revenue growth of 1.8 per cent with market share increasing and gross margins slightly up thanks to a change in business mix.

This included an increase in private label sales and came against increased pricing pressure as markets deteriorated.

Wolseley UK and Ireland saw revenue up one per cent to £3.2bill thanks to acquisitions.

But, trading profit was 16.6 per cent down at £176 million compared to £211 million in 2007 and this excluded £12 million of exceptional restructuring costs, mainly relating to 13 branch closures and 150 redundancies in Ireland.

The company hopes this will produce annual savings of £17mill.

Meanwhile, the trading margin fell from 6.7 per cent to 5.5 per cent, largely due to lower profitability in Ireland, although the plumbing and heating business actually improved its margin.

A company spokesman said: “The results for Wolseley UK reflect tougher trading conditions in Ireland throughout the period combined with an increasingly difficult UK housing market, as the year progressed.
“New housing starts in the UK slowed significantly in the final quarter in response to the lower availability and increased cost of mortgage financing.

'Deteriorating consumer confidence is also affecting the RMI market. Government expenditure on social housing, health and education remained positive.”

The report added that ten net new locations were added in the UK and Ireland during the year taking the total number of branches to 1,927.